Controladora Vuela Compania de Aviacion SAB de CV Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tom Fitzgerald - TD Cowen - Analyst : Hi, congrats on the nice results and thanks so much for the time. I'm just wondering if you could maybe unpack just kind of how you're thinking about pricing scenarios for -- and like RASM scenarios for the second half of the year a little bit more? Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations Good morning, Tom. This is Holger. So in the first half, we did see some softness in line with the broader industry trends. But I would say, starting mid-quarter of the second quarter, we see sequential improvements with stabilization of demand and fair trends ahead of the peak summer season. The demand trends have been quite constructive, and we're also seeing stronger potential for cross-border traffic as volatility eases. We do expect that postponed VFR travel over the summer season will resume, and that leads us to see second half demand tracking stronger and in line with historical seasonality, that is both true for volume and for fares. And we see better TRASM outcomes for the second half of the year.

Question: Shannon Doherty - Deutsche Bank - Analyst : Hi, this is Shannon Doherty. I'm for Mike. Thank you for taking my question. I'm just curious about how demand trends in other markets besides the US have trended heading into this strong summer travel period, particularly on the international front, Central America and into South America? Thank you. Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations Hi. This is Holger again. So we're seeing, as I mentioned, a recovery in the transborder market, but we are also seeing the same trends in the domestic market. I can tell you that customers are deciding more close in to book their travel for the summer. Customers do remain sensitive to macro and geopolitical headlines. But this close-in booking has enabled us that to yield up both in the domestic and international markets, while not affecting load factors. So overall, we're quite excited about the third quarter and the fourth quarter.

Question: Shannon Doherty - Deutsche Bank - Analyst : Thank you.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Hey, guys. Good morning. Can you speak to transborder stability specifically? And maybe just play back the history for us, when did you first see the pause or the pullback? And could you play back kind of trends through the balance of the second quarter to today? Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations Hi Duane, this is Holger again. So yes, as I mentioned, mid-quarter of the second quarter, we did see improvements of demand patterns and fare environment in the transporter market, and the stabilization of demand ahead of the peak season in the summer. We believe -- we are convinced that VFR travel is resuming people want to see their friends and family over the summer vacation period and that the retraction of demand that we saw earlier on the -- in the year was temporary and that structural demand in the transborder market remains solid. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 22, 2025 / 3:00PM, VOLARA.MX - Q2 2025 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Okay. And then just with the revision in capacity for the full year and for the back half, can you talk about the relative revision for international capacity growth versus domestic capacity growth? Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations Yeah. Sure, Duane. So we've slightly lowered our ASM growth plans for the full year, from 8% to 9% originally to now 7% ASM growth for the full year, and that really reflects both engine availability and our commitment to profitable growth. And if you break that down by geography, we are currently guiding to a 6% ASM growth for the third quarter, which is a lower growth in the domestic, round about 4% to 5% and international in the mid-teens for the third quarter. That's the breakdown

Question: Stephen Trent - Citi - Analyst : Yes, good morning, gentlemen, and, thanks very much for taking my question. Can you hear me, okay, by the way? Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director Yes, we can, Steve. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 22, 2025 / 3:00PM, VOLARA.MX - Q2 2025 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call

Question: Stephen Trent - Citi - Analyst : Great, color, Holger. I appreciate that. And just a quick follow-up. I know some of this political stuff is like impossible predict but, with everything going on today, this sort of dispute between US DOT and Mexico, possibly competitor is going to have a joint business agreement canceled, when you think about all of the stuff in the mix, is it conceivable that all else equal, that cancellation helps Volaris? And has it really made any difference in terms of how you guys operate your northbound flow? Or is it really not -- doesn't make a difference at this juncture? And, thank you. Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director Steve, this is Enrique Beltranena. Let me tell you, we met with the Mexican government yesterday, and I remain confident that both governments will reach a logical and mutually beneficial agreement. To be honest with you, when you take a look to the points that are under discussion, most of them are kind of a delayed agenda that given the changes in both governments, we couldn't tackle at the end of the previous government. But we will continue to provide updates as appropriate. And we have to be -- I mean, being consistent with our approach in situations like this, I don't think we should speculate. It's not related to a category to the downgrade. I mean in practical terms, the order simply requires us to submit our schedules to the US authority. And I mean, in line with the way our government has managed its relationship with the US, we'll feel tremendously confident that the solution is going to be here in the next days.

Question: Rogerio Araujo - Bank of America - Analyst : Hi, gentlemen, good morning and congratulations on the results. A couple here. One is on ASM growth for '26 and '27, any preliminary expectation you could share assuming the underwriting of aircraft and the upcoming deliveries, maybe a range we could rely on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 22, 2025 / 3:00PM, VOLARA.MX - Q2 2025 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call And also with the current TRS level, how much margin would you expect Volaris to deliver? If not for the grounding of part of the fleet? And in your view, would the net margin be on positive territory, if we would consider theoretical normalized operation? Thank you. Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations I meant for the next year, what I do want to highlight is that flexibility for us remains a strategic advantage, especially as we look at the evolving macro and competitive landscapes, what -- we are currently targeting very preliminarily with an ASM growth in the mid-single digits. And this strategic flexibility that I mentioned enables us to adjust capacity up or down around about 3 percentage points in either direction. And it helps us to respond very quickly to shifting demand trends, both upwards and downwards. What we do want to maintain and we want to emphasize next year is margin discipline despite all the macroeconomic uncertainty. And we want to reiterate that we are well positioned to grow in an emerging market. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President And Rogerio, this is Jaime. With respect to your second question regarding margins. On a normalized situation without AOEs due to the engines, considering that we are targeting having a mid [37] margin in a normal scenario with a normal productive versus non-productive fleet if it should be 2.5 points better. EBITDAR should -- right now has a benefit of around 4 points and the net margin will be 3 points -- percentage points higher than current conversion due to the rounding's.

Question: Rogerio Araujo - Bank of America - Analyst : Okay. very clear. Thank you so much. Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations '26 and '27, it's too early to say right now.

Question: Pablo Monsivais - Barclays - Analyst : Hi, thanks for taking my question. Just a little bit of a follow-up on the demand side. Besides immigration impact, have you seen any impact on the soft economic activity that we're seeing in Mexico, particularly in the domestic market? And also, if you can share some pricing dynamics within the domestic market, for example, I would love to know if you're seeing some price sensitivity on the leisure market relative to VFR and the domestic side. Just some more color will be welcome. Thank you. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Your question -- could you repeat the initial question so we can follow up? Thank you.

Question: Pablo Monsivais - Barclays - Analyst : Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 22, 2025 / 3:00PM, VOLARA.MX - Q2 2025 Controladora Vuela Compania de Aviacion SAB de CV Earnings Call

Question: Guilherme Mendes - JPMorgan - Analyst : Hey, good morning guys. Thanks for taking my question. First one is a follow-up on the booking curve. I guess it's clear that passengers are buying tickets closer to the actual flight date. But Holger, when you compare to the first quarter, are we already starting to see an improvement on the booking curve, on the actual visibility on the booking curve or not necessarily? And the second one is on the overall competitive environment, if you mind sharing your views on how competition is behaving and the overall industry rationality. Thank you so much. Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations Okay. So this is Holger. So yes, we did -- we do see an improvement versus the first half of the year, especially the first quarter. Starting in mid-second quarter, we see a stabilization of demand patterns, both in the international and the domestic markets. And demand for the second half of the year is tracking stronger. Remember that the second half of the year is seasonality adjusted, always stronger than the first half of the year. So we do see a more positive outlook for the second half of the year. In terms of competition and capacity, it is encouraging to see that industry-wide capacity in both international and domestic market is adjusting with demand. The capacity environment in the domestic market has been quite rational. I do want to highlight that Volaris was the first carrier to make significant capacity reductions, focusing on cash positive flying and EBIT positive flights. And we see that the industry has also adjusted their capacity downwards to bring capacity growth more in line with demand patterns that we're currently seeing.

Question: Abraham Fuentes - Santander - Analyst : Yes, thank you. Hi, good morning. Could you give us more color about your fuel hedging strategy, please? Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Of course, this is Jaime. We have some hedging for the month of July and August. We are hedging 40% of the consumption at a strike price of $2.15 per gallon.

Question: Jens Spiess - Morgan Stanley - Analyst : Yes, hello. Thank you for taking my question. I have three actually, if I may. The first one is, is there any potential capacity easing at the Mexico City Airport, what was the implications for you? I mean, I guess, obviously, that would be positive, but in what magnitude? Secondly, just to delve deeper into the 3 percentage points in either direction of capacity, flexibility, that's for 2025, right? So basically concentrated in the second half of this year, just to be clear, I understood it correctly. And lastly, taking into account your new capacity guidance, what are you assuming for the rest of the year in terms of redeliveries and deliveries? Thank you. Enrique Beltranena Mejicano - Controladora Vuela Compania de Aviacion SAB de CV - President, Chief Executive Officer, Co-Founder, Director This is Enrique Beltranena. So in respect to your first question related to slot capacity at Mexico City. I think what happened during the last quarter where we were able to raise one operation more on a per hour basis in Mexico City. I don't see any further improvements in the next 1.5 years. There's one possibility, which will take about 1.5 years to 2 years to be constructed, which is a faster runway for lending and being able to pull out much faster from the active world. But that's going to take about 1.5 years and 2 years, and it's a well-studied proposition as of now, still not under execution. Speaking about the rest of the things, I will allow Jaime to give you the responses that you requested. Jaime Esteban Pous Fernandez - Controladora Vuela Compania de Aviacion SAB de CV - Chief Financial Officer, Senior Vice President Hi, Jen, how are you? Jens, this is Jaime. First, on capacity and deliveries of new planes, we're going to be delivering three aircraft during the second half of the year, and we are going to be receiving eight aircraft in the second half. But again, remember, think about the ASM growth. We already provided the guidance of the ASM growth for the second half. And as Holger mentioned, in terms of the flexibility of capacity, that flexibility, the year 2025, the guidance includes what we feel comfortable in order to deliver the guidance that we provided and for 2026, that will be in the mid-single digits with the potential to go 2 percentage points or 3 percentage points below depending on how we see capacities. Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations So we were referring to 2026, Jens.

Question: Alberto Valerio - UBS - Analyst : Hi. Thank you for the opportunity, Enrique, Jaime and Hoger. I have two on my side. The first one about our flexibility within the Volaris network. How you guys are between domestic and international? Look like domestic, it's a little more stronger than the international for this year due to the geo political conflict and so forth? How flexible are you guys to change the routes? And my second one is about the initial remarks of Holger in the beginning of the call. about the unbundling the tariffs of the airport. Have you seen any change in the behavior of the consumer in terms of the airport if they are preferring to go to one airport and avoid another one, just curiosity. Thank you very much, and congrats on the results. Holger Blankenstein - Controladora Vuela Compania de Aviacion SAB de CV - Executive Vice President - Airline Commercial and Operations Hello. This is Holger again. So regarding your first question, I think what distinguishes us from our competition is the flexibility that we have in deploying capacity. Our guiding principle is cash positive flying and profitable flying, and we will allocate capacity wherever -- that is the maximum

Question: Alberto Valerio - UBS - Analyst : Thank you very much.